Disabled work program investigated for fraud

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AbilityOne program funnels about $3 billion per year of taxpayer money to fund contracts for goods and services

Sources say the agency is allowing jobs to be taken away from disabled people

(CNN)The nation's premier federal program that provides work for people who are severely disabled is mired in widespread corruption, financial fraud and violations of the law, numerous sources tell CNN. And instead of helping the severely disabled find work, the taxpayer-funded agency is at times allowing jobs to be taken away from the disabled, the sources say.

AbilityOne, along with the nonprofit agency that manages its program for the severely disabled, SourceAmerica, are being investigated by authorities for illegal operations, financial fraud, mismanagement, operating in violation of the law, steering of contracts, and possibly obstruction of justice. Several inside sources tell CNN the program is among the worst cases of its type they've ever seen in a federal agency.

CNN has learned the U.S. Department of Justice has begun its own investigation into the various allegations. In addition, at least four separate inspectors general offices have active investigations into AbilityOne and SourceAmerica. The OIG from the General Services Administration, Department of Defense, the Veterans Administration and the State Department are among those investigating; their investigation is being led by the State Department IG.

What is AbilityOne?

The AbilityOne program was first created with ambitious, altruistic goals by President Franklin D. Roosevelt and Congress in 1938 to help give jobs to the blind.

The AbilityOne program funnels about $3 billion per year of taxpayer money to fund contracts for goods and services across the country. For a company to get a contract with AbilityOne, 75% of that company's work must be performed by blind or severely disabled employees, who cannot work in a normal job.

But CNN has learned that as many as half the companies contracting with SourceAmerica under AbilityOne may be operating in violation of the law, without enough severely disabled employees, according to sources with knowledge of the program. There are no such allegations of wrongdoing with AbilityOne's contracts for blind people.

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What this means is the program responsible for making sure severely disabled people are being hired with taxpayer money through federal contracts is not enforcing or following the law, according to numerous inside sources with knowledge of the organization.

AbilityOne is run by a commission made up of presidential appointees. While they must approve all contracts, sources tell CNN they are essentially a "rubber stamp," for the referrals sent to them by SourceAmerica, which essentially operates independently with contracts for the severely disabled. So, one key allegation is that SourceAmerica, a nonprofit agency with virtually no oversight other than AbilityOne, largely decides how roughly $2.3 billion in U.S. taxpayer money is spent, according to numerous sources.

"The contracts are now being funneled to a very small group of 10 large companies that are getting way more than their fair share," said former congressional investigator Rich Beutel, who now lobbies for companies in the industry, including one that's suing SourceAmerica.

Beutel and numerous other sources tell CNN the staffers who are essentially handing out federal contracts at SourceAmerica are heavily influenced by top officials there, and those top SourceAmerica officials are often connected to the very businesses that get the contracts -- sometimes even in top leadership.

Several lawsuits have been filed in recent years accusing AbilityOne and SourceAmerica of awarding contracts not on the basis of merit, but rather through unfair influence by decision-makers who have interest in the outcome.

"So that you have actual advisers and board members in these private organizations who are themselves business owners; and so they can award themselves potentially contracts worth hundreds of millions of dollars," said Beutel. "It's a perfect setup for waste and abuse," he said.

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The agency denies those accusations. "No one involved in making award recommendations to the commission is employed by an organization seeking those contracts," read the statement sent to CNN. "We want to be very clear, SourceAmerica board members are not involved in the evaluation of contract bids or recommendations to the AbilityOne Commission."

Disabled losing jobs

It took Randall Love years to find work after a tumor on his spine left him nearly paralyzed in 2008. The IT professional struggled through physical therapy to even be able to move in his home, and he can't travel to hold down a regular job. He finally found work at home through an AbilityOne contract, and it changed everything for him.

"It gives me ... a sense of being worthwhile, a sense of being able to contribute to things, a sense of being able to help others," said Love. "I get up just like everybody else in the morning. And I go to work, too. I'm not disabled. That's why I say it's the cure for me," he said.

But Love and numerous other disabled people were left jobless when the company that hired them, NTI, lost its AbilityOne contract to a company named Peckham Industries. NTI officials appealed the contract award multiple times detailing what they call "overwhelming evidence" that Peckham would "not be in compliance" with the 75% requirement under law.

Mary Joan Willard, the executive director of Boston-based NTI, blames the government for not having a system of checking whether a company is compliant. Willard and NTI have sued the U.S. government, and by extension, AbilityOne and SourceAmerica, in the contract dispute.

Peckham disputes NTI's allegations, saying in a statement to CNN, "We are now put in a position of being a victim of false allegations by an unsuccessful bidder. ... The fact is that Peckham EXCEEDS the 75% requirement with a proven record of employment of severely disabled about 80%. Peckham has consistently maintained the required ratio for persons with severe disabilities served through the AbilityOne program." When CNN asked for proof of the employment numbers, Peckham declined, citing ongoing litigation.

CNN has been told by multiple sources there is no real verification process in AbilityOne or Source America to determine whether severely disabled workers are being hired in the proper ratio and the contracts are operating legally. "Their definition of 'verified' is they look at a piece of paper that Peckham has signed saying, 'We are in compliance ... these people are severely disabled.' And that, to me, is not verification," said Willard.

Meanwhile, workers like Love are furious they lost work. "I tell my kids this all the time -- that you always must do the right thing," said Love. "Doing the right thing ... doesn't mean that you put 16 disabled people out of work. Doing the right thing also means ... that you don't replace them with people who don't have disabilities."

Numerous sources with direct knowledge of AbilityOne and Source America contracts tell CNN there are many companies contracting through AbilityOne and Source America across the country that do not meet the government's rule of having a 75% severely disabled workforce, made up of people who cannot perform other jobs.

"The majority of the individuals that were being hired were not severely disabled," one inside source told CNN. This source worked for years as a hiring manager inside one of the big contractors that gets many AbilityOne contracts, through SourceAmerica. This person knows the program very well, but asked CNN not to reveal their identity because they still have close contacts in that world. The source cited numerous examples of contracts operating illegally and out of compliance.

"I would say in my experience in the AbilityOne contracts that I worked on, maybe 10 to 20 percent were truly severely disabled; they truly did not have the ability to find gainful employment elsewhere. Everybody else -- they were capable of finding employment elsewhere," the source said. What the source witnessed would be illegal, because the contracts would be out of compliance.

Asked if anyone in the program ever actually checked to objectively verify if the contracts were operating legally with the right number of severely disabled people, the anonymous source told CNN: "Not that I'm aware of. I mean, we tracked numbers for our own record-keeping to ensure that we met that 75%. But as far as any type of documentation being turned over to AbilityOne to actually show, 'Hey, these individuals have a severe disability,' I'm not aware that that ever took place."

"As long as you have a report that says 75% of my staff is disabled, there's no other checking," the source said, adding the program is both a "ripoff" of taxpayers and also an affront to disabled people who want and need to work in the special contracts.

CNN heard similar allegations from numerous sources across the country. SourceAmerica says they conduct on-site visits, but according to their statement: "SourceAmerica staff does not determine compliance; only the U.S. AbilityOne Commission is authorized to do so."

Even on the rare occasions when companies are cited by AbilityOne officials for not being in compliance, nothing happens, numerous sources told CNN. In recent years, CNN has learned, at least 80 letters were sent to contractors from AbilityOne officials stating the contracts were in violation of the law and out of compliance, and demanding they submit explanations. But only about half the companies even bothered to respond or explain why they were operating illegally.

Have a tip?

The Office of Inspector General has a tip line for anyone with information about AbilityOne or SourceAmerica. It is oighotline@state.gov or 800-409-9926.

What's more, none of the companies operating illegally were disciplined in any way, according to sources. And these letters were only sent to the violators that self-reported their low numbers out of compliance, or where the small AbilityOne team tasked with overseeing the enormous program managed to discover violations.

CNN has also learned there are many contracts operating across the country that have not been seen by any AbilityOne compliance officials in years and even decades in some cases, despite the fact they are supposed to be seen regularly. And sources tell CNN the legally required documentation on severely disabled workers is rarely completed and turned in to AbilityOne officials by contractors.

The contracts are awarded for all kinds of products that are made through the program and can be seen in the comprehensiveonline catalog. AbilityOne workers also do many services with the contracts, such as answer phones at call centers, janitorial cleaning and laundry work, often at government buildings or on military bases.

While CNN has learned there are at least four inspectors general now with active investigations, none of them is officially tasked with oversight of the program or agency, and none has complete authority over it. They are pursuing it because of concerns that have been raised about specific contracts under their jurisdiction.